wanted to focus more on the some of the content of the plan we have to find a way to get it done as far as i'm concerned. the things i was interested in that you included the recommendation that consumers receive more pricing and performance information and broadband provider and it's something i offered a bill on with senator begich, digging once when counties and cities and states are tearing up roadways that you then put the chondroitin and then finally the is a limit of the next generation of 911. i co-chair that 911 caucus with senator burr. ..

>> and whatkind of steps are you looking at? >> some of them go to best practices for networks. some of them go to issues with respect to outages. you know, for many agencies, including ours, there is a focus every day of developing the best set of strategies and tactics to deal with a fast-moving problems. very focused on this. making sure that we both identify the steps to take and that we have the authority to pursue them is essential.

>> have a bill on peer-to-peer. i could not believe the stories i hear. one employee of a company does the market home. loaded a program on there. all of the companies got on to the internet and are taken from someone and a bunch of them become victims of identity theft. i hope you will be looking into that as we go forward. i thought i would talk a little bit about the position focus on promoting competition by having transparency and the information available, as i mentioned before, so that consumers know how fast their internet is, what the price is. could you talk about the importance of that? >> sure. one of the findings of the work we did in the broadband plan was that the speeds that consumers actually get is much lower than

the advertised speed. there is a lot of consumer confusion. one of the things that is, makes me optimistic about this area is that new technologies provide new ways to get information to consumers in better, more efficient ways that they can make the market work. >> consumers probably want to know not just what their speed is. in a vacuum that means nothing. what the average is, what speeds are that help you to get certain things. >> yes. and we have already taken steps at the fcc in terms of applications that we have released that allow people to measure the speed that they do have. it is just the beginning. ultimately it should be easy for a consumer to be able to know their speed, other people's speeds, various competitors speeds so that the market can work as effectively as possible. >> can you comment. , how much, you know, what you have seen in other parts of the countries. >> listen. we were happy to include that idea in the plan.

there were a number of areas where there are some obvious steps that can be taken. increase the speed and the deployment of wired and wireless broadband. this is one. it is an important part of the plant. >> for the 911 piece of this. what steps is the sec taking to move forward with an ip-based 911 911 system to nine people who are calling 911 are just using system to nine people who are calling 911 are just using land lines. they're not just using a land line. most have adapted to that. there are still some issues. they will be on the testing. they will be stuck in the middle of a snowmobile in the middle of minnesota and nebraska. lost or they break their legs. they can only text. we are not quite ready for that new world. >> there are many challenges. i think the goal to your point as well is very clear. consumers need to be able to contact 911 with whenever communications service they are

using. there are a series of steps to make sure we can you the ability to contact a first responder. >> it really could be helpful for downloading a building for the firefighters. just the potential for safety if you can get pictures from the scene and then send it back to first responders so that whether there are cops or firefighters. all this is going to happen. we have to figure out how to do it the right way. >> it is critical that we do it and it is critical that we have the ability to do it and move quickly because we can't afford to wait. >> thank you. i had some additional questions from our local broadcasters. i will put those in writing. thank you. >> thank you, senator. thank you, mr. chairman. thank you, chairman genachowski, for being here today, accepting an array of critical issues with respect to broadband and how we

are going to deploy broadband in the future. i commend you for the work that you have engaged in. on the question of neutrality. we have heard so much discussed here today on both sides of the equation. as you know i have been a strong proponent. organized and working on the drafting legislation from the previous congress. we do think it is important. i think it is so often overlooked, the fact that nondiscrimination requirements have existed in our telecommunication statutes for more than 70 years as a requirement to ensure against unjust anti-competitive practices, unreasonable discrimination. that is what it is all about. i would say the innovation has really been compatible with those nondiscrimination principles since the sec took action in 2005 up until the time of the court case. frankly geico existed. the point is we have to make sure that we have the same freedom and openness.

make sure all users of the internet have the sensibilities. there are and our way of groups that support that neutrality. consumers union, a christian coalition, gun owner association, american library association. they are concerned. if you don't have those types of protection that you don't have the ability to infringe upon anti-competitive practices, you are going to deny the average person with a small business access to the internet as we know it today. it is not changing. it is what we had. we have had historically. i would like to hear from you what other ramifications. if we don't. frankly we are looking at one side or we don't want to regulate the internet. not trying to keep it as it is. that is the interesting part. there is even a growing

consensus within the industry and stakeholders on this very question even though major carriers that have opposed that neutrality in legislation or a posted in the past are now coming around. so i would like to have your views in taking it from a different perspective. the ramifications without such protection. >> i think the ramifications could be that's our world and innovation and entrepreneurship goes away. it is the freedom and openness of the internet that has created all these incredible success stories. tiny companies started in drives that now employ hundreds of thousands of people that create economic activity that are some of our major exports to other countries. my concern is that if we don't preserve the freedom and openness of the internet that we have had other countries will move forward and take our mental as world leaders and innovation.

that is what i am concerned about. to your point preserving what we have had is all we need to do. >> maintaining the status quo. understanding the technology has evolved in very recent years with respect to voice and video. we have to accommodate that. the court did not say you did not have the authority. the authority was not tied to any specific statutory provision. authority might have under the statute. you also have an open proceeding. so obviously you think you do have some options. >> reopened the proceeding because we wanted to make sure that there was as much clarity and certainty as inty as possibe

about, in this area. the proceeding is open. you will be getting comments. we extended because of the decision. i know remember exactly. i do hope that can become a vehicle for getting to the point that you mentioned. i agree with you that and the last few months we have seen the area of consensus grow in terms of what the fcc should do and the area of disagreement narrow. that is a very healthy thing. i am committed to continuing to work in that direction so that we can preserve the free and open internet that has been such a boom par our country. >> i hope that we get to the legislative front. in the meantime it is going to be important for you to be doing the work that you're doing. hopefully that can work and we can build that kind of consensus in reaching that accommodation. does the court decision denying you beyond the broadband plan over all other areas in which to extend, you know, broadband, for

example? emerging technologies. where is it going to inhibit your ability to implement the broadband plan? >> potentially it raises questions in a number of areas including universal service to rural america, small businesses, consumers, public safety and cyber security. that is why it is so important that everything that we do has a solid legal foundation. the communications act, i believe, requires the fcc to adopt policies to protect consumers in concerts networks whether they are traditional networks are newer data networks. they assume that the fcc is making sure consumers are protected, competition is promoted, innovation and investment are promoted and it will be completely consistent with the communications act for us to continue to do what the fcc on a bipartisan basis has been doing for quite some time. >> thank you, mr. chairman.

>> senator nelson. >> thank you, chairman. i would ask that my statement be entered in the record as an opening statement. >> will i have a chance to read it first before i rule on that? >> that is up to you. >> so ordered. >> thank you, mr. chair. >> mr. genachowski, your plan has recommendations to provide the ultra high-speed internet to some select military installations. and, of course, we have quite a bit of military in this state of florida. so share with us, what makes large military installations an ideal test bed for the ultra high-speed internet connection? >> one of the things that i saw at our air force base in qatar when i was over there was how forward-looking the military is an understanding that broadband

communications concern multiple objectives. keep our troops in touch with our families whether they are at a base in the u.s. or abroad. further distance learning, making sure that troops can complete their degrees. and as the military. further health care related objectives. when i was in arkansas, senator pryor is not here. i met someone from a military. he had to take his paper records with him, his paper medical records with them. including the military as part of our test bed effort as thinking about the ways that we can identify ways that we can rollout broadband, share the benefits, and share learning was a very important part. find a way that they can participate in making sure that all americans can benefit. >> if we can ever get it sufficiently secure. we can have our military in the field be able to vote well its

overseas. we have been racing. so when we find out how many military ballots are actually absentee ballots that are counted you will find it is a pitifully poor percentage. something for your consideration. the small business. what initiatives to you have to move forward with immediately boosting the small business segment that can stimulate investment in the nation in job creation? >> we found that in small-business. the opportunity is huge. it on the internet, expand their markets, grow their businesses, reduce their cost by using services in the cloud with a real result of a greater

revenue, lower cost, more profits, more jobs. we found that there are two obstacles, essentially, to small businesses and broadband. one involves literacy, understanding what is out there, and the other involves affordability. on the ledger is the understanding peas we have already announced -- chairman, i forgot to mention this before. the small business administration immediately start providing better information to small businesses about the opportunities and how to get on broadband, administrative mills has been a great partner. with respect to affordability there are a series of competition issues that we need to address. they don't feel their choices are adequate. they feel their prices are too high. that is an area that we are moving forward on at the commission. it is complex, but it is important as more businesses understand the opportunity and that they have real choice. >> now, in your recommendations to reallocate the spectrum from

various uses including tv broadcasting to commercial wireless uses like smart phones and high-speed wireless internet the question is are you going to treat public tv broadcasters like you would be commercial tv broadcasters? >> well, the plan that we have suggested is a voluntary one where it is focused on commercial broadcasters that increases their options to share spectrum with another and the market. public media has been extraordinarily important in the country. even more so as the commercial sector has had to deal with the awful economy. that has had certain consequences on programming. public media becomes incredibly

important both with respect to the traditional television. also making sure the public media carries the next generation of audiences where they are, the internet, mobile phones. we found that public television will be very interested in the partnership on the best and most effective way that they can serve their audience and they're very important mission in the 21st century. >> thank you, mr. chairman. >> thank you, senator nelson. senator cantwell. >> thank you, mr. chairman. chairman genachowski, it is good to see you. having a workshop. coming up here later this month. i know you're going to hear a lot about what we think about and the northwest as how fundamental it is for the future of broadband in the united states to make sure there is an

open internet. we appreciate you holding that a field hearing. i always am amazed and i see these, you know, these reports says the decision, 53 percent of the public does not what the sec to regulate the internet. the institute is the public wants the fcc to protect them to make sure that the internet is not artificially taxed by business preventing consumers access to content without paying more for a. the notion that somebody thinks they can spend this around washington, i guarantee you will your and your full when you go to seattle when they understand that access to content to the internet should not be artificially taxed. one of the things i am curious about is since we had our hearing about the comcast-nbc merger we have now had this

decision. so the potential combination of comcast and nbc, how will that impact your -- monday you can't speak specifically. i am asking you to speak broadly about the commission in evaluating that deal. the mci verizon you were able to condition post mergers, protecting the consumer using net neutrality. so how will you look at making sure that content is not blocked? content is not blocked unless it is things that will be very important for that decision. >> but as you indicate i can't talk specifically about the transaction. i take your views and i will make sure that they are incorporated in the commission's consideration of the transaction. >> do you have a concern generally that is harder now that the court decision?

>> i am not sure that it is harder. there are many very serious issues and the transaction that will be taken one by one very seriously and looking at them in their own terms. i imagine -- i am sure that these issues will be considered very seriously as part of that. we have already heard from people on that issue. i am sure we will hear from more. we will be taken very seriously. >> i know also in another decision with the third circuit's moving to stay on media ownership that came out. there is now an opportunity of the commission to start moving on the process. as i know you have a review of media ownership. to me it is very important that the commission start moving on this and make sure that you consider this in a comprehensive way. is that part of the plan? >> yes. we started the process of the review, the 2010 review and 29.

there will be a commission action to get to the next stage. we will be tackling the ownership issue. >> thank you. we are eight plus years after 911. the notion of interoperable its communications systems were for first responders is still more of a bold goal than a reality. in your broadband plan you have some objectives to meet certain petitions no later than the third quarter of this year. we are very interested in the northwest seattle, particularly pierce county. you might have seen this rash of police killings. it would be -- the law enforcement into was very interested. in these parlous state inspections 's trusts to be abls

for building interoperable network. >> it is a vitally important issue. the plan has, it is a real action plan to move forward quickly and make sure we get a public safety network built. does require some actions by congress because this is an area where we don't think the private sector will get a public safety net for built. we have a series of steps to take in connection with that to make sure that networks are hardened, interoperable. we have a unique opportunity that i am very hopeful that we can take advantage of. as we are building out our 4g networks if we can build up the public safety net for at the same time we will reduce the cost of that dramatically. if we don't move forward with the public safety network now and all the 4g network are are already out and we try to accomplish exactly the same thing letter the the cost will e

much much higher. i agree with you that it is considered essential to move forward on a very fast timetable. >> by the third quarter of this year. >> we will make -- we don't have the funding available. we will make -- we will do everything that we need to do on our schedule. >> thank you. i would just like to echo my colleagues, you know, calls about unlicensed spectrum as it relates to the development moving forward. i know you guys are looking at 20 megahertz. their is a lot lot bigger need. thank you, mr. chairman. >> thank you, senator cantwell. we will go to a second round. >> of course. >> i was just saying to senator hutchison before she left i don't know how many times i have talked here about this position.

and the 24 years i have been on this committee about rose. where the name was written in there. strikes me that i am not doing row america a favor when i do that. you talk about a looming spectrum crisis. you come up with, you know, the nation needs 500 mhz and the next two years. i have this worry which goes along with what i said in the beginning about set out a large picture. there is sort of nothing. taking this 9/11 thing. i am so shocked. i am so embarrassed. you got the blessings of the 9/11 commission. but i am fairly sure they could not have read anything about

interoperable, you know, first responders because really nothing has happened. there have been bids. nothing fundamental has happened in the most obvious homeland's security national safety to issue imaginable. now, i'd go back to my safety disaster that we had. people could not call. it was really embarrassing, mr. chairman, to see the horizon technicians who had been obviously, you know, up for five days trying to string wires through landlines out to a place they rarely had ever been to before, if ever. maybe to the elementary school where the press was. but, you know, they were out there like crazy. it was almost comical trying to string up wires so that rural america could be heard in a

genuine matter of life and death which turns out to be all death. now, i am not satisfied that you really are taking into consideration rural america. i think you're saying it. i think you are postulating it. you specifically define when you are talking about rural america. you say that the looming specter crisis when you are talking about that, it is strictly an urban problem. you refer to it as an urban problem. and that is all of a sudden. the adirondacks, and essex's of california, hundreds of thousands of square miles of new mexico, colorado, north dakota, state of washington, every state

has enormous world jaunt. the pattern of the telecommunications industry has been so clearly and so blatantly and so obviously to fold. one, we pledge to cover all of your people. how many times i have heard that from the different people who have been doing telecommunications for the greater part of west virginia. they always do right to the cities, write to the businesses to pay their bills on time and right to the sections where the houses have the income levels so they don't have to worry about it. don't try and look for them in a rural west virginia or in rural montana or . they're just not there. and they're not going there. so when people say -- i get sick of this talk. this is meant to be about real people getting service.

we got into a discussion about light touch versus of the touch and process and title one and title to and all of that is important when it comes down to it. but the real problem is getting that service to people who need it. there are every single state has rural people. i want to know what your plans are for that. >> look, mr. chairman, i could not agree more with what your saying. i could make a couple points. the problems and borough america are very serious problems. the plan takes them seriously. proposes the first ever mobility find. >> i knew you were going to say that. go ahead. >> it is an important step to directly tackle the challenges in rural america. >> when will it be in place? >> as soon as possible. we will lay out a time. >> what does that mean? >> there is a timetable.

i apologize. >> to you have an idea? that is a lot of america. >> as quickly as we possibly can. >> you feel the pressure, though? >> i certainly do. >> not me, but of rural america, underserved, and serve people speaking, needing new. if you need us to help you get the authority that you need usance. have been, you know, i don't want to get into this thing, but chairman powell made your life a whole lot more difficult, a whole lot more difficult. let's just face facts. if you are going to need help to be able to do more you come to us. it may be a closed vote. it may be a partisan vote. i have no idea. it is a battle worth fighting. getting you out to where you can do what you want to do quickly,

quickly. that is the main problem. and it is also yours. everybody expects some to be able to get everything done in the first year and have. peas in the world, prosperity in america. all the rest. you have some of that problem, and you ask for it. you are smart and aggressive. you surround yourself with a rather small group of people. i don't know who you listen to from the outside. i don't know what your process for setting priorities and make sure that they are done. the work plan is really the only way you get anything done. it is not talking about a problem, it is doing something. ..

>> hof i love the free-market it is the best allocator of goods and services but it needs a referee. you are the regulator. when i say i am not for the light touch i don't want over regulation by what you to use the right touch to make sure the referee is doing with the referee must do to keep the free market free. with that i wanted to send

your questions about the internet and broadband and indian reservations and the very difficult problem is there they are way behind also service reform including injured carrier compensation which is very important that reform carefully and thoughtfully and also i will send you some questions about the 100 megabit 2020 which is called 100 squared and the plan calls for universal service. my question will be as i send you questions come up what part of america will be served with 100 megabits? isn't that a substantial digital divide? water the consequences of that for economic opportunities in the region? but a very short story. growing up in a town in a

small house with two bedrooms and negative shut out from. i had not been at that house and saw was a teenager i knocked on the door and the baby than answered by absurd you mind if i have seen this home. this is where i grew up. as i enter this shed i saw a bunch of cardboard and tape and as i walked into the kitchen i saw a camera on the kitchen counter and a little stench with the bracelet and singing and i said what you doing? caretaking a photograph of the bracelet. because i sell on the internet. really? i sold jewelry i buy from what others then resell, and i said is that what the a cardboard boxes are for? so here in my home, a very small home it is a woman

that reaches the world. she is on the internet and someone from moscow can access what she is selling. i said her you doing? she said feinberg, has been drives the gas truck and i make a decent income selling on the internet. that would not have been possible previously. she has international business capability but she has that because no one has the opportunity to say you are too small or we will impose a fee on you or some impediment that does not allow others to see you unless you have these three requirements to pay us to get on the provider network. nobody could do that originally under the rules of the internet because it was under title two and included nondiscrimination. that is why this is such an

important issue and i come back to it again prescribing the genius of the internet is the ultimate democratic tool for everybody in the world to reach everybody else without any interference. when someone of significant clout said i don't want this user that user using my pipes, that tells me wait a second. tollbooth and the gate keepers who might want to find ways to get revenue that is why this is so important to. the firms involved in doing in ovation, a god bless them. i support them. i am not anti-big but i want this to remain free and open and i worry back for the financial issues over the last decade and see what happened under blind regulators. we need the effective

regulation not to retard the innovation of major remains free and open and that it protects the free market. i just want to tell you the story because that is replicated all over america and that is a genius of people saying i can start a business in my kitchen. let me ask you finally my time expires but it is the case to reaffirm that the origin of the internet, the construction and a growth occurred under a series of principles that included nondiscrimination. is that not the case? >> i believe that is correct. >> the chairman indicated the fcc under a different chairman decided we would change the rules and described as other than the service under title ii the way it had been regulated. that was no service to you did in my judgment the

american people. i posted at the time we need to find a way to restore the act which always existed and has always existed with telephone service. it is the right way to protect the american people at the same time and allow the internet to flourish and grow with the free enterprise system to work the way it was meant to work flaky for spending your time with us today. >> senator johanns and. too really good 22nd questions -- 20 all-out second questions. this is not a question of whether these are good or not good a bunch of what senator dorgan says many of us myself included could

agree with but the point* is this is where we base policy. you are not elected nobody voted for you. and it is very, very important that federal departments exercise the authority granted to them. comcast has said very, very clearly you have exceeded your authority there is no way around that opinion. a second piece of this to go back to title ii with the history based on factual determination than tried to change the world i think will only buy greater litigation, more lawyers and you will be stopped in the end also. the point*, mr. chairman, that i want to make as a wrap up, there is a way to do this in the american system.

you are a bright guy and i have some much admiration for your background and skills. i cannot think of anybody who is better qualified but it is hear that this policy is argued out to. of the words exist in the english-language to give you the power to do that to neutrality and manage in that way if we choose to do that to you comcast said you did not have that power. under the title ii rulings of the fcc itself and under the supreme court decision relative to one of those rulings, i think the decision has already been made that part b and is the information service not telecommunications service and i think that change will invite again the courts will step in and stop you. i look forward to sitting down with you to have this

great discussion. >> two quick questions. will you decide on all open myspace issues with the reconsideration of the database order no later than the third quarter of this year? >> i believe that is right. >> i know the recommendation of the education recommendation there was discussion of different technology to reese's and you believe in neutrality? >> technological neutrality? >> yes. govett is important. thank you, mr. chairman. >> the meeting is adjourned. [inaudible conversations]

[applause] >> thank you very much and once again i am honored to welcome you to the beach trying to event and i was asked to reflect it takes me back to a couple of things when you see the picture back in that period of time i was there and we felt that

and you a experience did a and both of my a degrees come from there it to touches. it is interesting. when you look at the detroit economic club to help set the agenda when you look at that film of bringing the four most leaders to the podium to address many topics said point* between then was no exception on the most important issues of the day. the issues of find an american generation who articulated from civil rights to foreign issues and political ideology that played out during the vietnam war and elsewhere.

that when you think of it and look at the fell the idea that the flying 5816 tala and is a per day when you think about it 25 or three years ago was quite amazing. the detroit economic club served as a venue not only for candidates like jimmy carter and george bush but sitting presidents like richard nixon. it was clear to speak at the economic club was to gain audience with the nation and the world today that tradition continues in the wake of last month's historic passage and affordable care act our

topics on the next crucial this steps are on reform. we were all impacted by health care reform and have a significant amount of skin in the game and have the questions and concerns about what happens next but i will tell you that the cross blue shield of michigan is dedicated employees to help put the pieces of the post reform world together right away. the way to deliver some promises of a accessibility accessibility, portability for health care for all americans. with the man believes the organization that plays a major role in delivering on their promises of health care reform, dave snow is chairman and ceo of medco health solutions price $60 billion surprise currently ranked 305th on the fortune 500 list and operates the world's most advanced mail service pharmacy on the leading edge of health care innovation.

medco manages pharmacy benefits for 65 million americans across all sectors from every walk of life. of the customers include general motors, delphi, ford motor company and partners with several health care companies including lacrosse blue shield of michigan perkin -- . and for better health care spending for our largest customers we have partners to ensure the uaw medical benefits trust retained pharmacy administration through the michigan based company and the partnership has helped the blue cross blue shield of michigan remains strong with a conscience. through the partnership lose customers save hundreds of millions of dollars per year and it has created new jobs to handle mail order pharmacy customer service. those outcomes are a big

reason medco has been the most admired and trustworthy companies as defined by publications like "forbes" and "fortune" magazine. much of the credit is attributed to dave leadership. he has proven to be a health care innovator and as a veteran of the blue system and leading an organization of 22 -- 23,000 employees on the leading edge of clinical innovation. medco forges the future of pharmacy to reduce costs so we can afford to extend access to quality health care to all. is that really the true essence of health care reform? not surprisingly he was recently named one of the world's best performing ceo's by harvard business review and a true champion of health care reform and we had time to spend with him

and i think you'll enjoy his insight. please join me in welcoming dave snow. [applause] >> thank you, dan. i am really pleased to be here. i will warn you write-up front that i am extremely passionate about health care reform. i rarely pull my punches i am very direct and trying to reform health care 32 years now. it is getting very frustrating so i have to be more direct as they get older. all of you know, health care reform is fundamentally important in our country. there are some solid reasons for it. we all know that 40 million people are uninsured and the country but we also know the burden of cost related to health care is astronomical

and unsustainable. we now have been our hands a reform bill a health care reform bill and many people ask me is this a good reform bill? does it get the job done? the way i describe health care reform is a three legged stool. the three legs are access, cost, quality parts of the reform bill today is almost entirely about access. there is very little that gets up at cost or quality. if we don't get cost and quality this tool will fall over and fall over fairly quickly. the entitlement the we have created today in the current health care reform bill is actually highly inflationary for the majority of the bill is financed through taxes industries as well as individuals. most will be passed on to

everybody in our country and it will not stick to the companies who are being taxed. they become a legitimate cost of doing business. i am not being negative on what we have because at least we have one leg of this tool. access is important but cost and quality is really important because the truth is that cost and quality create the equation that gives to value for every dollar we spend in the health care system and the truth is i estimated i will show you exactly where and how that the 2.$4 trillion we spend on health care today 1 trillion is pure waste. her year. soviets the country can easily handle a new entitlement tied to the uninsured and also reduce the burden upon corporations

in our country and individuals in relation to the health insurance premiums. there are people who say he must be talking about rationing were cuts but i am talking about none of the above. with my background i also group and a family of physicians and i understand what it is like to practice medicine and how it is change how much more difficult it is today and how much less rewarding. with the right solution we can get the cost issue and create a mechanism for physicians to enjoy practicing medicine again. i only have a half an hour and there's a lot of stuff so i would get through as much as i can with some regularity because the truth is we all know the problems but but we don't understand are what are the solutions? let's start with $1 trillion

of waste and the current system on a 2.$4 trillion budget currently and inflating incredibly. how do we get to a real systemic solution that solves our problems in a rational way? we need to build those solutions block by block. if i were doing this, i would start with addressing the issues around chronic complexities underneath that is the wired health care system which is a great in a bowler to help us to solve the problems and you will see how that fits in. chronic and a complex disease affects 50% of the population and when i was giving this speech five years ago it was 45%. the reason the numbers changes the aging of america and it will keep going up because america will continue to age.

50% the population, that 50% i am sure if the and ran his numbers, of the 50% of the population, 96% of the drug money from a 75% of the viatical money. if you do the math bond 2.4 trillion you talk about one point* 9 trillion spent on people chronic and complex disease. it is estimated today with that money that we spend we waste $350 billion per year tied to the poor management of chronic and complex disease. you might say how was it wasted? there are two key ways. number one is patient stop doing what the doctor tells them to do and less than one year. if the doctor says i am sorry you have diabetes.

here is what you need to do to stay stable and healthy here is what you need to do with your blood sugar and your medication and less than one year they stop doing what they are supposed to do and end up in the emergency room, hospital, the expenses are significant. this happens all the time and every major complex disease. there was a study last year that showed all major complex diseases, a 65% of patients stop doing with the doctor told them to do them less than one year. c. everett koop said drugs to work for the patient to do not take them. it is very true. [laughter] if we really want to do something about chronic and complex disease, we need to manage compliance on the part of the patience. the other piece would choose

more surprising to people when you manage complex disease, a 33% depositions are not practicing current protocol and the reason is the knowledge domains are getting so deep so fast they cannot keep up. they cannot keep up record today from the time milan market evidence is produced it is 17 years to become standard practice. medco is playing a role. the one part of the health care system that is right is pharmacy her call 66 million members no matter where they go to get our drug's retail pharmacies, pharmacies reno with caretaking and a fair compliant or if the -- they are prescribing what is prescribed. know they are looking at the gaps of care and it is important to point* out

drugs are the first line of defense for 88% of all chronic and complex diseases. if you manage a patient properly on the drugs, the ability to avoid the unstable events, the big part take tied to the bat out come as well as the cost is enormous. medco is using a wired system, watching compliance when a patient is doing with the evidence based protocol or to close those gaps and dry pain compliance up there was a direct correlation going down as compliance goes up. of the direct effect both on the emission side on the part of the position as well as the compliance side. medco was able to close 76% of all gaps of carrot on the part of the patient within 90 days of every measure the gaps.

on the physician cited is a lot harder. physicians don't like to get the phone call from the pharmacists saying do you know it is more current evidence out there? it is much more difficult but it stuck in a book called the checklist checklist, recently about health care, evidence based protocols are nothing more than checklist that if you keep them current are a way to save a lot of money it is very helpful prevent a malpractice suit. what had medco is doing is a systems wired to close the gaps for our clients and any of the shares of $350 billion of voice that happens every day and our system and our firm assist see this and we're pushing the same gaps of care that

we are wired to. now we're starting to do demonstration projects with medical homes, and accountable care organizations because missions also would benefit from seeing this confirmation of a new mrs. jones was not doing a single thing, wouldn't that be helpful if you want a patient to become accountable? when i used to run health plans a while ago, 20 years iran them as the executive at u.s. health care, said an early precursor year prepay the position to be accountable for the outcome. but ultimately did not work because the doctor did the right thing to diagnose a problem, told the patient what to do but the patient went off did not do a single thing they were supposed to the next time the doctor saw the patient was set in the

hospital proposal you cannot go pay for performance until you give visibility to what is going on with the patient in between office visits. you have to make it wired system such that they can see what is going on and you can measure what they're doing and hold them accountable. that is the power medco has built that we will push to physicians. once you have physicians with that ability you have to change the way you pay them. let's imagine the endocrinologist the of the panel of 500 patients with diabetes and if we're telling you of the 500 patients come a 65% have one or more serious gaps in care perk up you are a practicing physician today could you afford to have yourself or your nurse practitioner calling all of your patients to close the gaps in care?

today the system will not pay one dime for that effort or not paid for the phone call they cannot measure you were doing. so you're not going to be motivated are able, an economics of your practice to fill the adapts. . .

call composition as rat poisoning. it is to send their blood told they bleed. the way we take that drug in we metabolize it with one enzyme manufactured in our deliver a and we all produce a different amount of that enzyme so a few produce a lot of that in slime you are going to flush the drug out of your system so quickly you are still at risk of blogging. if you are and under metabolized it will stay in the system

longer and you will overt in your blood and bloody doubt. today the truth is 22% of all patients put on within six months and up in the hospital with a serious plot or believe because the drug wasn't dosed properly. so what they are now doing in the protocol on first we are testing the patience because we do the landmark study with the mayo clinic by testing a patient before the dose to we could start them on the right dose 66% of the time we start them on a different dose than they would have been started on and we reduced hospitalization rates by over 30% by simply having that powerful information about you uniquely before you were dosed. the study also said that had the physicians durham the genetic testing before the surgery that required the need for the drug, because often what we did is we

saw the first dose been shaped the physician and had the physicians support the test and then we analyzed it and gave them the result the patient was often 30 or 35 days in. if the physicians would genetically test prior to the surgery we could get the reduction hospitalization rates over 50%. that is the power of genomics and this goes across thousands of different drugs as you look the consolation 70% of all drugs are tied to five key enzymes needed to metabolize and activate those drugs. lots of opportunity there, one other quick point when we started this venture with the clinic the fda had already put a warning label on the bottle saying do a genetic test before you post the patient. and it was a big deal. it was in "the new york times" and was in the new england journal of medicine and in "the

wall street journal" everyone read about in august of 2007 we started the study and mail of march of 2008. the first thousand doctors we called to order the did genetic tests three had ever heard of the test of the thousand. and i can tell you there's a lot of examples of this where in fact the truth will be 17 years before this becomes standard of practice despite the compelling evidence and by the way the fda is putting a warning on the drug now because of the study. so again there is a lot we can do just to get care from a chronic complex disease right following protocols using a why your system closing the gaps in care having complete disability and accountability. so that is 350 billion a year. then where would we go to reform health care? the next step i would take as medical malpractice reform.

fixing the problem around medical liability and defensive medicine. and here is the way i would do it. frankly if you have a protocol and you can see a physician is practicing to protocol, they are immensely defensible in the court of law, and inslee defense will. the truth is today when you look at the data and the standard of practice and the deviations to the standard it's very easy for a practiced attorney to have a field day. we spent $200 billion a year in this country about defensive medicine and medical malpractice we can take a huge amount of money out of that equation once we move to the wired system with protocols that in fact protect the physician so let me give you an example how that might work. today we know and we've known this for ten years actively the

10% of all women cannot metabolize the drug to office in. the number one drug used to prevent the recurrence of breast cancer once you've been diagnosed with it the first time. and if you are not on a drug once you've had breast cancer your odds of getting a second time in a metastatic way within two years are extremely high compared to if you were on the drug. so it is the first choice but to% of women can't metabolize the drug and it is interactive unless it is metabolized. seven years ago for genetic tests were produced so we can tell which a few or that 10% who can't metabolize the drug. seven years ago, and remember there are lots of other choices if this is in the drug for you and this is a life or death decision. today, seven years later all of

the first starts, out of 100 doctors today how many of you think are doing the genetic test first? out of 100 doctors how many are doing a genetic test? one. one. think of it from the math practice attorney point of view. they know that tamoxifen is not the right drug if in fact you can't metabolize it because you can't activated. you could be taking eminem same have the same effect. they know this. so a woman comes to that attorney and says i just had a recurrence of breast cancer. the first thing he can do now is say what is the drug you were put on when you had it the first time? it was tamoxifen. what's to a genetic test and if you in fact are one of those women that can't metabolize the drug just pay me, let's not even go to court it's over because the science is there and just so

you know the knowledge domains are getting so deep so fast physicians can't keep up just far mo genetics the face as we unravel the human genome it is a growing an explosive rate. in 2000 we knew about one diseased tied to the one gene. by 2007 we know about 19 diseases and about 76 different speed. by the end of 2003 added 42 new diseases and 64 more new genes all with genetic tests associated with it. human cognizant capacity five facts per decision just this science alone is delivering so many facts you can't possibly do it without a wired system and some kind of decision making support using technology. so, if you get the practice reform tied to protocols getting it right, you're not going to be sued. if you are in fact doing everything we as human beings --

know if you're doing the best there are a lot comes but if you're doing the best human beings know you will never lose a case in court that your protocol is 17-years-old the odds of you getting it wrong all are extremely hot and the odds of you getting sued are very high. so where are we now? we are at 300 -- three and 50 billion plus 200 billion. $550 billion of waste. where do we go from there? in medicare we treat the waste one third of the medicare budget on the last year of life and these are not -- these are not the gray areas where you are pulling the plug on grand blanc. these are the -- i ran hospitals and i saw this all the time where in fact we throw enormous money on creasy things the sometimes are not related to the patients died in just because

the family wants you to the and the doctor doesn't want to get sued and there are no pro calls upon which to act. i will give you an example of personal to me. my grand mother 96-years-old, this happens all the time and i will say this again. my grandmother, 96-years-old, a vital has a stroke, goes into a coma and get stabilized in the hospital and sent to a nursing home. in that nursing home she was in a coma unconscious for the year. my father who witold he was a physician told degette in the i'm going on vacation for a week. do not do anything hurlock. the family doesn't want it. he was clear about it. most families aren't. crystal clear and these are pierce because they're both physicians and work at the same hospital and my father goes off to hawaii wouldn't you know what my grandmother gets pneumonia, which i'm told is a pleasant way to go. i haven't tried it but i'm told it's pleasant. [laughter]

and my father gave substance but what did the physician to? shipped my grandmother in a coma to a hospital where she was in dee dee to admit it to the intensive care unit where they come tercel of antibiotics, got rid of pneumonia, should turn out to the nursing home in the, where she made another year and a diet of jihad. the doctors -- everybody knows when these things are just a waste but we do this in medicare across the country. it's $130 billion we flush away and medicare is approaching bankruptcy yet we continue to do this and we are not willing to say let's get smart about this. i'm not singing making a big deal politically. it's very hard to make a big deal. but i am saying if you have solutions like to protocols so the physicians can say these are protocols and this is what is mandated you can also basically

deal with the issues around -- i forgot what i was going to say. let me see. there were two points. we've got the particles and in the tort reform. o.k. so you've got the protocols and you've got toward reform. when those two things are there together, you are going to solve a lot of the $130 billion of waste so now you are up to $700 billion a year and this country that we based. each and every year. not over ten a year. so there's 300 billion more and it is something that i don't think the private sector is going to solve. i believe this is something the government has to solve and it's all around wellness. we spend about $300 billion in year tied to a lifestyle choice is in this country. the key villain right now is obesity followed by substance abuse and smoking. over $320 billion a year associated with those, the

outcomes of the lifestyle traces. in my view the government has to get much more aggressive with advertising and getting to the youngest generation. i remember when i was young the public service ads around later, a huge problem when i was a kid, and they started running public-service ads with the native american indians and remember the car goes by, trash also to the native american indians feet, a pan of the indian coming down and they played all the time that tells you i watched a lot of television at that time. [laughter] but it really affected me and i would feel guilty if i put a gum wrapper on the ground. it really affected me. for my daughters, the crash dummies and seat belts. i can't start the car without my daughter is reminding me to put all my seat belt. it's very effective when you get to the youngest generation. i think we need to start doing

that much more aggressively. now actually i am seeing more now, and i am talking graphics. if you want talk about smoking and cancer, me to graphic. if you want to talk about what obesity those to the body and what the long-term effects are to your well-being, get a graphic. be willing to go at it and really make people -- evin use guilt. it's fine to use guilt. i don't know if you saw this in the paper to years ago, but japan decided that obesity was the number one problem, and other than the sumo wrestlers i never thought of japan as an obese place. but they see it driving their costs, number one thing. so what japan did -- and i am not recommending this -- but what japan did this draconian. what they did is they really made people feel guilty. they said all men will have a 33-inch waist. [laughter] or better.

all women will have a 34-inch waist or better and i guess that includes pregnancy. i'm not sure. [laughter] but they put the onus of the measurement of the waste on the employer's and the employers were penalized and find if in fact everyone within six months of measurement was and that the government required waistline. now that is a homogeneous population. maybe you can get away with that. we could never get away with that your. i would look horrendous with a 33 interest. [laughter] that tells how other countries are going at it. i just think we are too far. i couldn't possible, might insult someone to talk of the paucities to meet the problems of the city but it drives the cost of the systems we brought to a trillion dollars. it cost of petroleum dollars and i ask you to look at the health care reform bills today. to create that leg of a stroll around the aspects. what does it do about the cost and quality equation to get at

the trillion dollars we could use to pay for the new entitlement and also band the curve downward which was the original goal when we talked about health care reform. bending the curve down for everyone, not just the government program. the truth is we have the ability to do this in the system today. we have the technology. we have the providers who would like to practice medicine a different way and be paid for what they do. but we are putting the pieces together in an effective way and we can't do it all what once by the way this would take 15 years to get everything in place the right way to get everybody comfortable with a system that is managed this way. the danger is if we don't start down this path now in washington i am already seeing this. everybody is singing this health care reform was hard thank god we are done. no we are not. if we think we are done now, we

are going to see employers giving up sooner relative to their ability to carry the burden. we are going to find our costs are so phenomenal we will be left with little choice other than to go to a single payer socialist system, which frankly isn't efficient. this bending over in europe right now because europe is traditionally used price fixing as the way to manage costs. that game is over. the rates of inflation over in europe or faster than ours here right now and they have none of the other tools or techniques. they have no innovation going on. so it isn't nirvana over there. we have the ability to continue to do the best medical system in the country and we have the ability to bid in a fiscally responsible way if we get smart about how we approach this and build it piece by piece in a way that is fair and the right thing to do. so one last point i want to make

is everybody asks me or you down in washington this past year widen the congress to any of these things? i will tell you yes i was down their way too much for me. we too much. on i am not a politician and i was invited to the white house six different times and by the way there were other very smart people about health care in the meetings and people were seeing the same thing. it didn't matter of it was cleveland or the mayo clinic or the health plans. every consistent feedback about where the money is wasted in the system and what we need to do. you might ask why didn't the bill have anything specific? now there are provisions for innovation. the center of innovation demonstrations but it's a little vague. why wasn't their something specific? use a fundamental problem. everything you put into the public policy has to go to the congressional budget office.

the things i just talked about to you have never been done at scale so therefore cbo cannot score them so that is why people often say the government cannot innovate. the best they can do is create a guard rails on libraries of the private-sector can do what they do well which is enervate and operate. so many members of congress love the concept and try to get them into the bill through the cbo and they won't score. they only scored by a ring health care with $12 billion over ten years. it is the great in a blur to get a trillion dollars a year. or at least 700 billion of it. the great ann boehler yet s-corp 12 billion over ten. the other things they could barely score. so the private sector is needed more than ever to make real health care reform happen. we need 10% of this bill around cost and quality care if effectiveness studies,

accountable care organization studies, what your health care studies. by the we $20 billion in the stimulus bill to what your health care. we still don't have a blueprint to give it and my biggest fear is we are going to spend it to put a pc in the doctor's office so the doctor can put his medical records into the computer. that isn't wiring health care. nothing to do with firing healthcare. we have the building blocks. we know what to do but it's printed to the private sector to do something big enough on scale that it proves this works so you can score it. once you can score it he will see the changes put into effect in public policy for medicare and medicaid and drift system and the right direction. that is what we need to do. today we are not there and with that i am going to close and i am available for questions. [applause]

>> we a time for a couple of questions. as an employer what are the things i should be doing to bend the cost curve? >> the employers are in a position they need the people they hire to bend the costs. clearly benefit design is something we've all done and it's run its course. of the things i just talked about are the root cause problems or not we to be solved through the benefit design. and you don't want to go to the rationing. but i would hope employers what search out the health plans or the combinations that are getting at the root cause drivers of the cost so by the way if you close the gaps of care you will drive medical loss ratio down to read it yourself insured that means you will contain total health care costs. medco has 50% of the fortune 500 employers as customers today.

they've won $21 billion worth of business in the last 36 months because they understand the power of closing gaps in care to get patients with chronic complex disease stable. they also loved the promise of the formal economics of personal list that is in so i think it is about holding the the people the you how your to manage your health care for your employees accountable for moving the the needle when you do best in finals and make sure they are moving to the needle will just sitting in place writing this atrocity and i think that that will push the industry both my industry and ban's industry to innovate and to some of the things under the framework that can balance this tool so that it won't fall over. i really think that is where the onus lies. health plans, people with health

care who deliver health care need to do with a different way that works for the people paying the bill. >> the last questions before in a row on the subject matter as individuals should we be amended the family doctors are looking for performing a genetic testing as part of our work and you will? >> that is a tough one. i can guarantee my wife if she were diagnosed with breast cancer should get a genetic test before she was dressed with tamoxifen. you can't expect the public to know this, number one. number two, you wouldn't believe how hard the conversations or when we are talking to specialists about the science to tell them why she delete addition to the testing. it's hard and honestly is very complicated. i do believe the protocol that will tie all of the tests and

all of their implications together is fundamental so that its in front of the physician as he's trying to design and treatment past. i don't think the individual -- a the individual consumer can be empowered with information as well and take it to their doctor. we actually are doing that today. we have the information and on genetic interactions. we have a lot of this there in a layperson's language so they can talk to their doctor about it but they will have a tough time selling so the doctor understands the science. it is difficult even for our specially trained pharmacists to educate. so i think we need a systems approach that can help the patient get the right thing done. i really do. >> thank you. [applause] >> david, thank you so much.

i think there were a few guests in the room during certain times. i think we all learned some really important things and mr. snow and his team have been nice enough that if you would like more information that is digestible by people like me who are not health care professionals with a booklet as you walk out the door if you would like to take that this compliments of medco. figure for the terrific job as presiding officer and as i said earlier, folks, we know you have a lot of demand on your time. thank you for investing it with us today. the meeting is adjourned. the great day. thanks. [applause] amol goebel conversations

[inaudible conversations]

now a house hearing on the national flood insurance program. witnesses include a panel of house members and fema

administrator. maxine waters of california chairs the financial services subcommittee on housing and community opportunity. >> the subcommittee on housing and community opportunity will come to order. thank you very much. i would like to ask the members to take a seat at the table. we are very pleased to have so many members of the house with us today, and i would like to start the healing by getting statements from the members. i know that you are busy and you don't want to sit through our opening statements, is with us

today we have the honorable jerry costello, the honorable doris matsui and jane tayler and we'll start with doris matsui. >> thank you madam share. my friend from california and the ranking member capito for allowing me the opportunity to testify the committee today and to thank them for scheduling the consideration of the flood insurance reform prayer the act. this legislation was to co-sponsor reforms the national flood insurance program and fip and contains language teacher 1525 that i offered back the would provide technical changes to federal flood zone designations to revive also like to think chairman frank and ranking member bachus for their continued advocacy for h.r. 1525 both of them and there are incredible staff have been invaluable during this process. additionally i am grateful to

hud to craft the number of nfit. from the louisiana bayou to the plains of the midwest the committees are in putting flood protection infrastructure in order to keep american safe and secure. however as we were to conform to changing dynamics with federal standards these committees are speaking clarity's as it works on the federal regulations. public safety is my absolute number one priority. h.r. 1525 which is approved last summer by the house national flood insurance period extension act would give communities the clarity so they could continue to improve flood defenses. specifically this legislation update current law to take local and state federal funding into account when determining flood zone designation.

the residence in the state of california had the ability with hundreds of millions of dollars to the flood protection it is crucial this investment derecognized by the federal government fema needs to review the process of federal levies on the determine an area of flood designation. for example on one project in my district in the basin by next year the state and local governments will have spent more than $350 million over the last five years on the levee improvements without acknowledgment of fema and the remapping process. protecting the constituents from the danger of the floods requires comprehensive approach local communities, states and federal government must all be thoughtful and committed partners. with regard to another issue i would like to raise i believe it is equally important to note that since hurricane katrina

fema issued new flood insurance maps and many parts of the country. in my district the maps please an area in and the flood zone and trigger the federal requirement to carry flood insurance more than 15,000 homeowners. there is no doubt that in the basin like most of sacramento is at risk of flooding has delays up the confluence of major rivers. but as i noted earlier, sacramento area control agency is working with the corps of engineers and california department of water resources to implement an aggressive ambitious let's see improvement planned to achieve a 200 year level of protection. while these efforts are ongoing flood insurance has become mandatory and costs homeowners more than 1,002 entered $50 annually. this is nearly four times the rate. i always urge homeowners in the flood plans to purchase flood

insurance i have serious concerns about families being forced to incur higher insurance rates during an economic recession. interest rates on top of the flood protection many residents pay each year compounds this problem. i'm pleased the legislation considered by this committee tomorrow for the newly mapped areas. this provision is a good start to but i would respectfully anchorage the committee to work with fema to offer reduced flood insurance premiums to those areas that have already been revamped or implement other policies that would injure the affordability of flood insurance rates in doing so the committee would make sure of responsible homeowners across the country continue paying into fi nfip without adding risk to the flood plain. thank you for letting me address the subcommittee. i look forward to the continuing efforts to improve flood

protection. i yield back the balance of my time and i apologize for my horse race. >> thank you ms. congressman. [inaudible] >> thank you. thank you, chairwoman waters and ranking member capital and distinguished members of the subcommittee. i appreciate the opportunity to testify before the subcommittee on h.r. 1264 the multiple peril insurance act. this bipartisan legislation has 22 co-sponsors and makes critical reforms important to the people of south louisiana. by adding multiple coverage which includes wind and hail to the national flood insurance program, homeowners will have greater protection against damage caused by hurricanes and others storms. adding the wind and hail coverage to the nfip would give people in my district peace of mind that their homes, businesses, churches and schools will be protected in the face catastrophic storm damage. i commend congressman gene taylor for his leadership and diligence on this issue. i'm proud to join with

congressman taylor and championing this bill so that no american has to experience with the people of the gulf coast went through after hurricane katrina. we in south louisiana have to live with the threat of these massive hurricanes every year but we shouldn't have to live without protection from future storms. as this subcommittee will nose after hurricane katrina many homeowners found themselves stranded with no payment from insurance companies. many homeowners were forced to sue their insurance companies in order to recover any money from the policies. some insurance companies over build the nfip for the flood damage will the home owners' own damage. after hurricane katrina had many private insurance companies refused to write policies that included when the coverage. 46,000 people were forced into the louisianan citizens property insurance corporation which is the state's high-risk pool and louisiana was forced to borrow $1.4 billion to re-enter these additional policies. the policies and to the state insures of last resort is not an effective or efficient solution to the need for the wind

insurance. thousands of home insurance decoders to purchase the wind it turns out meet their policy wanted to pay even though they were covered for both. that's because some of the storm damage if some was caused by wind and some bye flood it was up to the homeowner in many cases to prove whether the wind or the flood came first. this added insult to injury for thousands who lost everything to the storm and just wanted to get there, repaired yet many had to take their insurance company to court just to enforce the policies they had been paying premiums on for years. this important legislation takes vital steps to implement lessons learned and prevent history from repeating itself. the current system creates an inherent conflict of interest between private insurance companies and the federal a ride over who pays what and with water and wind damage. this legislation eliminates that conflict by providing homeowners with the option to purchase a multi apparel policy for both wind and water.

no longer will homeowners be forced into the state run wind pools with private insurance companies refuse to write wind coverage. adding guinn and hill coverage to the nfip allows us to spread the risk geographically in a much more efficient manner. state run wind pools concentrate the risk in large portion of the policies through the state pool could all be affected by the same disaster thus making it very difficult for the state from pools to build up enough reserves to pay in the event of a major disaster. this problem is not limited to the gulf coast alone. wind damage is a risk all across the coastal united states and it's important to note 55% of american citizens live within 50 miles of the coast. clearly this is an issue that affects all americans not just on the gulf coast. i recognize some members may be concerned the bill puts american taxpayers on the hook for the coastal disasters. to the contrary, this legislation is designed to be actuarial sound. according to the congressional

but joe office, but just as to what pay for itself through the premiums would be assessed. another important component of the bill is the additional loss of use coverage. after hurricane katrina, the federal government paid out $34 billion in disaster housing assistance alone. adding loss of use coverage would reduce reliance on the federal good friend for disaster assistance in the face catastrophic damage. this will alleviate some of the burden on taxpayers as opposed to adding to it by relying on disaster assistance that is often expensive and subject to fraud. it's time to enact reform so that homeowners have comprehensive hurricane insurance protection. enacting the reform to the nfip will allow us to move forward with five-year extensions and put an end to the short term extensions expire when congress fails to act. chairwoman water still listed in the right direction towards the extension and i look forward to continuing to work towards this goal.

as we approach enacting the reform's passing the long-term extension becomes more critical letter today the ultimate goal of the region is to build a comprehensive hurricane protection system that allows us to look back at katrina and say never again. i appreciate the opportunity justify before the committee and i look forward to working with you in the future to achieve the fundamental goal. thank you. i yelled back. >> thank you. next we will hear from the honorable jean tayler. >> thank you for holding the hearing and for your speak to the present situation doesn't need to be repeated. the bill before you that you co-sponsored would do other things and increase the amount of coverage for those people who either have their homes destroyed or substantially destroyed in the course of the storm, something that shocked us who lost our homes as the eckert will cost of replacing them so it increases the volume to half a million and the content up to 150,000 because for all of a sudden there is a shock of how

much the stuff was worth when you went to replace. most importantly the, madam chairman, it does a couple of things as my colleague from louisianan pointed out it would prevent the situation where tens of thousands of homeowners have to sue their insurance company that they should have been paid the day after the storm. many instances it took years and it wasn't just average joes the president of the united states said in a federal judge is it you can say one thing about the insurance companies they screwed everyone equally. but the sad part is this eckert everyone. second thing is as steve pointed to the people who pay the premiums to cover the cost of the loss of the american taxpayer but after katrina we were proved beyond a share of the doubt it's the american taxpayer and last in response to this also they've proposed this measure they've walked away from this responsibility only to have another level of government responsibility and that is the

state level. why is the present situation? number one from the present situation has conflict of interest to build and where we have a private sector to sell the policy, the problem and to adjust the claim. after katrina the agents nationwide etc walked out and walked into a piece of property where the house was gone and they had to make the decision did the wind dewitt which means the company pays for did the water do it which means national flood insurance pays. every time they walked on a piece of property they said the water did it the federal government has to pay. as a matter of fact an attorney for nationwide before the mississippi supreme court when asked point-blank if the house was 95% destroyed by the wind before the water never got their how do you portion that claim? how much what nationwide play these copay he is quoted saying not one diamond. for those of you for conservatives you know that isn't right and has to change. second, it's become a governmental function where the

states picked up the liability and in the case of florida for civil the of billions of exposure. this did florida has exposure in a state that has a 70 billion-dollar general fund budget. so imagine if they had occurred in 2004 and again he would simply bankrupt the state. $6 billion of exposure, $6 billion operating budget. although people say the private sector will say the private free insurance is going to take care of that quite frankly if you look through that closing you'll find most of the policies come out of bermuda and the experience of the people of mississippi, we've seen in the texas after the last round of storms was if we can't get companies of springfield illinois and hartford connecticut to pay the claims how do you expect people in bermuda to pay the claims. the other thing that happens is

again, trying to look at this from the federal responsibility we paid the bill last time. when the insurance companies didn't pay typical homeowner policies is it your home is lost, if your home is in a way that you can't live in it they will pay to put your web based on the value of that home. when they denied the claim as they did in the federal government has to step in. $7 billion of manufactured housing. $15 billion of housing grants. $7 billion of sba loans and about $3 billion just for the trailers to put people on a temporary basis that the nation paid for that the insurance company should have the force of madam speaker i am trying to live by the five minutes. you've been down there a number of times but the fact the matter is the present situation is unsustainable. the present situation is now a typical person trying to rebuild in coastal mississippi faces a bigger insurance premium for his went coverage and his mortgage. when you drive around today and see the thousands of the job

waste where they're used to be a house and there's no longer a house is pretty simple they can't afford to rebuild because the insurance is so expensive because of the situation that has occurred since katrina so i would ask you give serious consideration. i very much appreciate you having this hearing and with your permission i would have a much longer statement for the record but trying to live within the five minutes and apparently i've done just that. [laughter] >> thank you. i want to thank you for appearing before the subcommittee today. without objection you're written statement will be made a part of the record. without objection such as the order. and i would now like to ask unanimous consent that representatives matsui, scalise, tayler and win cost shella shows up be about to be considered members of the subcommittee that the delusion of the hearing and pleased [inaudible]

thank you very much. [inaudible conversations] >> good afternoon ladies and gentlemen. i would like to thank the ranking member capito and the other members of the committee on financial services for joining me for today's hearing on the legislative proposals to reform the national flood insurance program. the flood insurance program provides dalia protection for approximately 5.5 million homeowners. unfortunately, the lack of the long term optimization has

placed them at risk. the program has lost twice since the beginning of this year. for the two days in march and 18 days in april. they were not able to write the policies and we knew the expired policies or increase coverage limits. this also meant each day 1,400 home buyers who wanted to purchase homes located in flood plains were not able to close on their homes. given the current crisis, in the housing market this instability and flood insurance program is hampering the market recovery and must be addressed. i also concerned about the impact of the new flood maps on the communities. i recently was able to assist homeowners in the area of los angeles where the had placed in a flood zone. i'm pleased that fema acted quickly to correct this mistake. however, there are thousands of

homeowners nationwide who now find themselves in flood plains and subject to mandatory purchase requirements. the flood insurance reform priorities act of 2010 would restore stability to the flood insurance program by real reason the program for five years. it would also address the impact of the flood maps by deleting the mandatory purchase requirements for five years. than facing the the actual rate for another five years. it also makes other improvements to the program by freezing actuarial rates for the properties raising maximum coverage limits providing notice to the renters about content insurance and establishing flood insurance advocate similar to the tax payer advocate at the internal revenue service. today's hearing will also examine age 60 for the multiple peril insurance act of 2009. this legislation authorized --

author rather by mr. taylor of mississippi would allow the flood insurance program to provide optional when the coverage. following hurricane katrina many insurers refuse to pull weld claims for the wind damage and instead insisted the damage was caused by floods even when there was evidence to the contrary. the gentleman from mississippi has personal experience with this bill allowing homeowners to buy the policies h.r. 1264 but in this abuse of the flood insurance program. i am eager to hear the testimony of witnesses today and i would now like to recognize the subcommittee's ranking member to make their opening statement. >> thank you, madame chair and for holding this important legislative hearing on the flood insurance reform priorities act of 2010 and the multiple peril when transact of 2009. i am looking for during testimony of the witnesses today including the colleagues have brought their perspectives on

the various issues related to the flood risks and there comanche as well as their efforts to protect against the risks faced by their constituents at home. among the most frequent natural disasters in the recent years storms that caused flooding have been increasing in frequency and severity. because private insurance against flooding is generally not available more than 5 million property owners and 20,000 communities participate in the national flood insurance program, nfip. while the program continues to provide protection in a measure of financial security for homeowners and businesses there are serious challenges to the financial viability and the years ahead the we must address. i would it be part from the written statement and say this is like a never ending story because we keep extending for months, a few more months and here we need to seek a resolution. first and foremost they carry the death to the cadet of more

than 18 billion it's been placed on a list. the program continues to subsidize over 1 million policyholders charging them significantly less than the full risk rate. furthermore the nfip doesn't collect sufficient premiums to build up reserves for unexpected disaster so what's the lead causes as we experienced in the to those five hurricanes. i want to commend the chair juan foot of legislation to advance reforms many of which i believe for stops the production to improve the program. while the discussion drafted it doesn't address the nfip's debt which is heavily on the program's financial future it process could reforms included in the legislation previously approved by the committee and the house. h.r. 1264 adult apparel insurance act is to provide property owners with the option to purchase an insurance policy from the nfip that covers flawed and wind storm experts. unlike flood insurance industry

experts maintain they are generally not available either from private insurance carriers or state based residual market insurance pools. as a her from the testimony both of our congressional colleagues this is presented huge challenges when trying to make the programs work to the benefit of many constituents better influenced. i am concerned it may not be prepared to handle this additional responsibilities and the taxpayers in general could be subjected to greater losses. perhaps we did find another way to address the issue or these issues the seek to address. as we've already heard as it restated the speed 11 has an $18 billion deficit and i do have concern adding wind storm coverage while it is struggling financially but it could be a recipe for a fiscal disaster. i look forward to working with the chairwoman waters and other members of the committee had my other colleagues on this legislative initiative as we

begin deliberations on that. >> thank you very much. >> my colleague mr. fugate has arrived and i would yield my time to him. >> i think mr. costello i think the truman for recognizing me and apologize i was supposed to be with the panel but i was chairing an aviation subcommittee down the hall but i do appreciate the opportunity to address the subcommittee and i would ask an analyst consent to please my full statement into the record. >> certainly. >> for the last year i've been working closely with the bipartisan working group of the 40 members and established the congressional levy caucus with congressman rodney alexander to discuss issues related to the fema modification process. a common theme that ran through the meetings was number one the

local jurisdictions need more time and more accurate information to address the impact of the new flood maps and number two the burden of land for a flood insurance for individuals and communities will be too much to bear during the economic downturn. as a bill introduced yesterday by chairwoman waters addresses both of those concerns and builds on legislation i introduced last year h.r. 3415. the solution crafted in this legislation will help a broad range of member congressional districts in communities across the country under chairwoman waters proposal new flood insurance read maps would take effect on schedule to ensure the communities and homeowners have full information and information about the risk however the mandatory flood insurance requirements will not take effect for five years in the newly bacteria's and mandatory insurance rates will be phased in over the subsequent five years and i strongly support the provisions as would provide an incentive for communities to take quick action to fix the fees for completing their work

to mitigate flood risk. prior to and during the deily in the fiesta and homeowners will be encouraged to voluntarily buy flood insurance and provide information about flood risk and the availability flood insurance and potential consequences of the failure to purchase insurance. to qualify for the delayed a phased in the local communities must develop a communication and evacuation plan to educate the community about flood risks which are two provisions i included in the legislation my bill, h.r. 3415. allowing the flood insurance maps to take effect will achieve fema's goal of risk to the committee indenturing homeowners will have complete confirmation. with the deily and the onset of mandatory insurance, homeowners' would be able to prepare for the high cost of insurance with the new flood that took effect. the original cosponsor of german waters bill and i believe it would achieve the goals stated all along. provide local communities and incentives to rebuild their levees and protect homeowners from high cost of mandatory

insurance and effectively communicate the risk associated with the levy plot of land. again i thank chairwoman waters, chairman frank, ranking member capito, bachus and the stuff for the financial service committee for working with me on these important issues and i look forward to seeing the legislation marked up and brought to the floor for passage. i think the chair for giving me this time and look forward to continuing to work with you on these important issues. >> are there any other opening statements from this side of the aisle? if not we will move toward having the second panel. to make their presentations. the honorable cried fugate administrator federal emergency management administration ms. williams brown director for financial markets and community investments u.s. government accountability office.

i am pleased to welcome the second panel and with no objection you're written statement will be part of the record and you are now recognized for five minute summary of your testimony. mr. fugate. >> thank you madam chair, ranking member capito and distinguished members i am pleased to be here to today to discuss the national flood insurance program. since i've been at fema the last 11 months i think one of our great challenges as you point of is the short term reauthorization and the gaps occur if the impact as people try to buy homes and provide insurance for their purchases. it's important we understand what the original flood insurance program was it was to protect communities against flood and provide affordable flood insurance and reduce the financial burden on the federal government in providing that. that program is pretty straightforward to the implementation is quite difficult and as the discussion goes meeting my conversations with the members here as well as

your colleagues in the senate we didn't have a lot of flexibility to address the challenges forward so we appreciate the work being done in looking at what kind of flexibility could be provided to fema in addressing these needs. but it comes with a cost. as was pointed out we have an existing debt over $18 billion. but i also think it's important to talk about the of exposure is. recently the miami herald ran an article what happened to the major hurricane hit south florida and what kind of exposure would occur in the storm surge. in a major categories five hurricane would be an almost 60 billion-dollar range. but what was disturbing was even in the category one hurricane over $20 billion worth of damage would be flood related. there are not $20 billion with flood insurance policies in effect so again, the potential loss versus with the program has injured doesn't always match up but it does illustrate the

larger exposure with flood insurance programs against these events. this also goes back to the mandatory purchasing and that the only people that are required to buy flood insurance are those of the highest risk within a 1% or greater risk of a flood yet we know that over 40% of the flood damages occur outside of that yet less than 1% of those homeowners have flood insurance so you're trying to maintain a program to protect homeowners and provide reasonable cost for the program is the only requirement to purchase is at the highest risk. it would be again a pre-existing condition the only people required to be in the program we are trying to be actuarially sound. it creates a lot of challenges as we go forward and we continue to map. the steps we can take to use the program i think is again as we do the new maps and changed

every designation i think it's important we look at existing homeowners and provide edgewood's deal for increases. i very much support giving the flexibility to recognize when the levees are approved it does not require or involve federal dollars that we give them the same recognition as we do those with federal dollars and recognize that work should dever and provide extended period for implementing changes. there shouldn't be a distinction between federal or local state dollars of the work is being done to protect the kennedy and we very much support that. we know there will be challenges when we go forward and we continue to work with the committee on the policy recommendations from fema but the challenges are daunting. as was pointed out about 25% of the policies in effect or below the actuarially sound rates which means we are not collecting enough money to cover the debt exposure. we of the existing balance of about $18.8 million which we do not have any really ready to pay down.

we currently about $100 million of interest back to the treasury so we have that debt plus the exposure plus the fact that we have policies that are actually delete below the cost would be to service the policies and again we are reminded that this program is necessary to protect homeowners and their mortgages and when there is programs will offer we literally stopped home sales of these areas. ..

>> while the structural issues were well known the management challenges have become more evident in the

past several years back we have made recommendations addressing virtually every aspect of the program a. for example,, we recommended fema improved nfip data quality, the rate setting process come oversight of the insurer's themselves, expense reimbursement and contractor oversight. while preliminary results of the ongoing review of management reveals many of the problems are ongoing, for the first time we are encouraged by. >> host: t. new tone with the acknowledgement that faces a number challenges in willing to engage in a dialogue with the gao about them. well that is an important first up three expect fema to take steps necessary to meaningful address the challenges. returning gauged in a comprehensive review of nfip that builds on the framework

to report later this year in we hope it will provide our roadmap to identify a group causes and roy identify the outstanding issues. also recognize many challenges face a program will require congressional action and more over we understand this is no small issue given the complexities of the program and often competing public policy goals including rates accurately looking at risk and the cost of the taxpayer. for example, many premium rates are subsidized by law and rate increases are capped including the off set of cost of catastrophe relief effort of these decisions involve trade-offs that have to be balanced. specifically while of mitigation is viewed as vital to limit the government's exposures charging rates that do not

reflect risk may hamper efforts by encouraging property owners to build in the harm's way and not adequately mitigating. moreover the current nfip structure increases the likelihood the program will have to borrow from treasury one losses exceed premiums collected thereby exposing taxpayer to greater financial risk. part of the conversation must include a dialogue about the appropriate role of betterment to pay for losses for natural catastrophes which in 90% of the cases include flooding. the other part is who should pay flosses? congress must decide how much of the costs associated with putting the government should pay versus property owners brokerage closing of like to know while the 18.8 billion dollars that nfip owes treasury may not seem large by today's standards but is significant and pared

to the annual premium revenue 3.2 billion dollars as of a bear. the debt may continue to grow unless congress and fema take action to redress the problems operational and structural issues. finally, one option to maintain subsidies would improve the financial stability would two rate of policies that the flow rate and appropriate the subsidized amount to the program. the structural change would remove the burden on nfip and making it explicit. thank you i am prepared to answer any questions that you may have. >> thank you very much. the modernization process has caused a lot of concern

to members and the communities they represent. what type about reach his to 17 doing to make them aware of the process and alert to the possibility of mandatory purchase of a flood insurance? >> madame chair the process is when we began modernization work with the community to work preliminary data, map findings, appeal process but one of the things pointed out is the communication with the public has not always been as strong particularly looking at the adverse finding that we increase the area of the special high risk during processing and there weren't numerous steps but we have to continue to work on the art reach and communicate to the public what they mean as mandatory requirements. 60% of the mapping is done

80% of the total maps are at a plant where there would be accomplishing that in the fiscal year and 20% remains. of the top 7 percent increase the risk of the designation for high-risk about 1% drop out. and is the communication were 7% of the findings increase but that early and explaining why it is important to have flood insurance allows those changes occur. >> can you explain the role cities and counties play in the remapping? a loss and those we discovered there was notification to the city. they had done nothing and mapping that was done in cooperation with the county that you were still using as the basis for your information. how does that work cork spirit based on each

city, county, as we try to see who has the authority? sometimes it is community planning or public works. we had overlapping mapping being done but not as a survey by the jurisdiction we initially talked to. we found we have to have mobile outreach to understand how mapping is being done and how it will be implemented whether a city or county or a water management district court other forces or the levy authority that may have some piece of that we have to work with. >> ms. brown come in your testimony you know, that the loss properties make up 1% of all flood insurance policies and up to 30% of all claims. what action should we take to reduce the rates of the properties? >> gao looked at this in the

believe that many of the current actions need to be ongoing and also structural changes that need to be made around the definition and many challenges in terms of forcing these particular homeowners to mitigate the properties and a dialogue fed needs to take place between the program and local officials. we believe an area where a common definition would be helpful in terms of the event and a particular eshoo and what action homeowners have to take. we found examples for homeowners were able to ignore letters from fema and the nfip program involving losses on the property and not responding to the offer with mitigation they were able to avoid being forced to take any type faction

faction -- action. >> i would like to ask the administrator, in your comments and also in ms. brown's comments, he botha said the rates being charged nfip do not reflect the risk and are underprice. what action items to you have to solve this issue at the present time? >> not any. part of it is how would structure did we're required to provide insurance and the all-out -- the rates we are allowed to charge. >> it is both true and a statutory. i guess what we have found is trying to phase-in reduce the move things that is recommended we would continue to subsidize the risk and it may grow. it is the intention of how

we minimize impact to existing homes of those dain with new construction. this is a mine to try to minimize the fiscal impact for homeowners to have to buy flood insurance better rate sound enough to keep the program poll. when you bring in 3.2 billion per year if you don't have a flood you are well but when the two events that exceeds the borrowing capacity of the program. for those stores subsidized subsidized, that may be a good decision but it is at the rate paid not the program level. whine of the recommendations of the gao as to how that specifically authorized by congress to pay the difference also released we can maintain the rear at with current exposure. >> would that require a further appropriation to subsidize? >> it would then allow us to start paying down our debt.

of the way we are structured we cannot pay down the 18.8 billion. we have no prospects of paying it down. any time we have flood disasters that exceed our intake for the premium that number grows in the interest payments back to the treasury grow because we're not structure directionally adjust our rates high enough to take that into account. >> the reason you can price for rescues because statutory and through rule you don't feel you have the ability to do that? is a combination of the policies of purchaser cannot afford that? all of the above? >> i king gave you a detailed report by users subsidize did palestine but if you listen to the questions we are asked if we find the risk is challenge than we say what is the impact to homeowners who now

have escrow billing $100 per month were 1200 per year there were not expecting? that would subsidize the risk a until at some point* we either have a charge fed is based trade -- phased in over five years but under the assumption the risk is paid for. >> if we then under the multi disaster of the multi peril bill that would add wind as a peril under nfip day un to support eight you could adequately price that for the rest and can this program sustain another what i could anticipate a large, we really don't know, added burden without

further appropriation? >> it is a key concern. leading we have discussed this issue. coming from florida recognize very clearly the challenges we have a written separately than tried to figure out to adjudicate but the issue of how to read maintain and run the program and make it sound is a question we don't have a comfort with the act. >> one of the concerns that you mentioned it would take for the appropriations to reach a proper subsidies to get the rates to match the risk or for you to pay down the debt from treasury basically you take from the treasury to pay down the debt. that has a false ring to it in my mind. i guess, to me adding

another peril while i understand, we went back and forth on the house floor when it was on the floor last year, ien a standby have concerns of long-term viability of nfip to take on an added burden at a time when really were falling behind daily from what i hear from both of you as a correct analysis? >> mr. green? >> mr. few gate i trusted you took it as a complement i did not mean to insult you. [laughter] but a few questions for the record. is it true that when we have flood damage real also have wind damage? >> absolutely.

>> is it true an insurance company will send out an agent to assess the damages? >> that is true. >> is it true this agent will literally be employed by the insurance company not the federal government? >> that is true. >> employed by the insurance company for identification purposes but a means this person remain -- receive something from the insurance company that we commonly call a paycheck. >> that is true. >> receiving this paycheck from the insurance company in no way influences the judgment of this person that comes out to assess the damages? is this true? >> that is the intention of the program. >> i am understand and believe me i interest and

that was a difficult question. i understand. but the point* i would like to get to is we have defacto subsidies. with reference to this circumstance occurred when the insurance company is in the unique position when deciding it should pay or if the government should pay. and in so doing every time the insurance company can roll the dice to get the government to pay it should get the subsidy program not of law or fact. there is really the inducements for insurance companies to one to have wind coverage in areas you will have fled damages, hurricanes, because when they can get the coverage and if the system remains as it is, there's a

possibility they will have a chance to roll the dice and make a decision whether it will be flat or wind. you don't have to agree but my point* is if we do not change that system, is it possible the federal government is subsidizing some insurance companies by way of allowing the agent to determine damages? not in any percentage but the insurance companies to win in the sense they're in a position to deny the liability war coverage and at some point* if we don't have a court to involve that decision stands. is this true? >> i could not affirm that at all. >> if the insurance company

denies liability, if the owner does nothing more, does the insurance companies judgment stand? >> the adjusters decision would stand unless it is appealed. >> assuming that the adjuster makes the decision in favor of the insurance company. true? that does happen? to make the gesture would determine whether it was a flood or wind impact. >> the adjuster decides that it is in fact, flood and not twinge and the possibility of both our breath appointee insurance company does not have to pay any claim on that property with that decision? vertrue? >> is general policy. >> the policy will allow a payment when the adjuster says it was water? >> and a note you can stay did i would not have this experience categorically that the adjuster frowned it

was only flood and not win to they may find it was partial of both. >> but if the adjuster says it is fled not wind, what happens then? >> a flood insurance policy if they have one will pay. >> a person goes to court and wins the lawsuit the means adjuster was wrong. correct? this is not difficult spread the judge has made a ruling spent taken as a fact the judge has ruled it was wind and not water does not the claimant win? the person who filed the lawsuit? >> coakley they will receive additional insurance dollars from the wind to help rebuild the homes of america exactly. that happens? >> it has happened in my stay were lawsuits were filed. >> of those persons don't

have the resources to go to court commit to combat with the insurance company, they are just out of luck. my point* is we cannot allow that the fact subsidy to continue and i yield back. >> thank you madam chairman. if the bill allows drafted is passed and becomes law, will the homeowner have wind coverage with his homeowners insurance as well as when coverage with the new program? >> i would not know. >> it would depend on the homeowner's policy. one of the issues we raised on this a couple years ago with the private insurance

market continue to offer wind? if they do you may have a situation that would be covered in the private markets as part of the homeowner's policy as well as a combination wind/flood policy. >> that is a whole different set of problems deciding which party was then going to pay. but if the federal flood program covers the wind damage then theoretically it is mandatory then the homeowners should be able to drop the wind damage on their residence. >> that is a choice. >> but only in theory would the premium go down? for the homeowner? >> correct. >> so the question is if

these properties are double covered or the private market will complete the withdrawal and coverage from the coverage we had a similar hot thing happened with foundation coverage were at some point* they said we will not cover foundations and a more. >> fishery raise in looking at this is it the structure were in place and we maintained fed to be why zero structure selling the combined wind sled coverage it provides the opportunity for adverse selection they could continue to offer wind up to the lower risk customers but not offer win the coverage for high-risk customers which means the highest risk of homeowners would migrate to the

combined programs. >> piven's situation where the homeowner's policy write-down and costs, the savings could be absorbed in a higher premium and the program would not have run into the whole as much you could increase the cost of the insurance. it depends on the private insurance market reacts of this rich to become what would they offer the coverage in particular areas? it depends. >> for the administrator

administrator, you testified with the new mapping approximately 7% of the area added to the application then you had a 6 percent added so is there any reason that with that increased 6% you have a huge increase in the number properties that have to have mandatory flood insurance when they go to close on their house? and in this case is a higher number of mandatory policies does that translate as a program that becomes more solvent and able to pay the debt of four the is it creates even more losses than that?

>> the funds will have more coming in but you'll flood 1% per annum of risk they are most likely to flood and then be sound by only the requirement of the policies be written up the highest risk. you may see short-term funding that long-term exposure is greater. it is accurately depicting what that risk was but because you only require people to purchase flood insurance at the highest risk it does not offset the exposure it increases even though without floods it gives the appearance of increased revenue streams to pay down existing debt. >> mr. taylor? >> the administrator said the flood insurance lost 18.8 billion in the year

katrina but did not tell you the nation's laws have an additional 34 plan 5 billion because the private sector did not pay the claims it was 4.2 billion 7.1 billion of manufactured housing hud housing grants sba disaster loan 7.6 billion idem looking up the flood insurance laws because the private sector did not pay their fair share the same reason the insurance industry had $44 billion of net profits of our nation loss 53 billion to katrina. we try to keep that from happening again and those people who live in the wrist area to purchase a policy that will cover these costs. to that point* mr. fu day i am sure you know, the agreement with the insurance

industry does the commission for that if they get a paycheck for adjusting the claim that our contract says they will do a fair adjustment of the claim 60 percent water or 40% wind or pay through the flood unfortunately testimony before the mississippi supreme court by a nationwide attorney and i am sure they hire the best justice pierce a quote i am giving you the example 95% of the home is destroyed by wind the flood comes and gets the other 5% and you know, that. is your interpretation of the sequence talking to that attorney mean you paid o?

mr. landau in testimony before the mississippi supreme court said yes your honor. they paid o. going back to your job you run a federal flood insurance program and her testimony before the mississippi supreme court the paid representitive says there are circumstances where they should have been paid 95% of the bill they pay zero with the federal taxpayer 100%, what have you done to look into this? a contract with america says they have to have a fair adjustment of the claim but i am not an advocate of bigger government except when government can do better prepared to the point* how many fraudulent claims has the national flood insurance program looked into? i cannot think of another single instance mr. fugate

for someone can send a bill to the federal government for $350,000 of limited amount of and no one takes the time to see if it is a valid claim? you have on the record with a company admitted of 95% of the burden was theirs, they pay nothing if the last 5% is done by the flood? i am telling you i'm amazed this administration reluctance to do something because doing nothing is to repeat the $53 billion mistake. >> to be specific a lot of this is from general accounting office but to the very point* of what you are articulating which is how you reconcile dual peril written by two individuals have a conflict of interest but we contract with the insurance company to adjudicate they come to us

to ask for to withdraw from the program and look at how do we provide claims adjusters to see what we currently pay insurance companies? natalee no internally we have to face large insurance companies question why they want to continue this for the very reason it puts them in the untenable situation where they try to reconcile how much is flood or wind. >> mr. fugate what changes are you recommending so this conflict of interest as a have been? by the way, how many cases have you looked into were obviously there had to be fraud if they admit before the mississippi supreme court they are liable for 95% in 5% cost by flooding that means they don't pay any that means nfip and fema picked up the bill. have you looked into one case. >> personally i have not as

the major agency? >> i will have to respond to have the accurate information's been mccann who give me a guesstimate? >> no i cannot. >> you cannot guess one, 10, $2,853,000,000,000 bill and nobody is looking to see if we should have paid it? >> thank you madam chairman. >> we have 10 minutes left to have to go take three votes then we will recess and come back for the third panel. >> they do cheers woman waters i know we worked on hurricane recovery issues and still have to on the loan forgiveness rules but that is another issue for another day the following up on congressmen taylor and other members questions regarding the actuarial soundness of the program i

agree the 18.8 million is a problem that has to be addressed the problem that was not caused or in relation to the issue at congressmen taylor bill addresses to bring the wind into the flood insurance program and in fact, my feeling the bill we have would help solve the actuarial soundness of the program if you look at the cbo report it confirms it would be actuarially sound and pay for itself but it would address the heart of this problem we're having right now which is the debate of wind versus blood. it was such a frustration for my constituents who bought a policy that covered the fire and theft and wind but then they also pay for the flood insurance policy

than they got both but yet neither policy would pay because each pointed the finger at somebody else and in many cases somebody may have lost the whole roof so there would be wind damage but the homeowner's policy said regis point* to the flood insurance program make them pay. so your program, a nfip can only charge premiums renown based on the flood risk. bylaw you can only charge premiums for flood but in fact, you are paying claims for flood and wind paying both in italy charging premiums for once you cannot be actuarially sound and other current roles in the bill would help to fix the problem because you eliminate the debate no longer do have two different people has said the gao has suggested to have conflicts

of interest because it is in the best interest of the insurance company to say if we can get nfip to pay it that is money we save a few combined into a multi apparel policy debates the premium on the combined risk and you have this kind current causation question anymore because if it is caused by winter flood it is all one policy and they pay the premium and when you pay the claim you pay the claim that it does not matter at that point* but you pay the claim because you charge a premium based on the sound of that manner for both but right now under the current rules apply pay claims for rose soy can see where you were in the auction early on sound basis for various reasons and i hope you look into a conversation between you and congressman taylor

and it happen before you got here but clearly nfip was paying claims they have no business paying for because the gao gets into this and point* out how there were those complex with various insurance company said everything we can dump on to the flow of -- load program will make them pay because they will you held up your end but so many people had to take their insurance company to court to make them pay for the wind damage the other thing this policy has loss of use so what also addresses the problem of lithium and trailers to have to wait two years maybe they finally got paid for the claims but wait two years living in a trailer because they had no means to live so with the loss of the component that will also be

paid for now not three years' severance program but the fema trailers but also through the action early sound multi perrault claims that want to talk about that because as you look at halifax year program helps the soundness of the flood insurance programs you have to pay for somebody else's damage. >> that has a lot of interesting points to wherever the reason i'm 25% below has nothing to do with that maybe some degree by cannot quantify but i am alone when congress reauthorize the flood insurance program they limited the annual increase 10% per annum so i cannot it be remapping i can only move up a certain amount so that leaves me not to be i assure the sound because i am capped with a 10% increase. >> that is flood that wind is totally separate and

requires actuarial soundness her cry know i matter of time. >> our bill will move that from 10% of that 20% see will have more flexibility the chair know some members may have additional questions which they may submit in writing 30 days for written questions this bana will stand in recess and we will be back. [inaudible conversations] our first witness will be david conrad senior water resources specialist national wildlife federation the second witness moby mr. mark day be president and chief executive officer of national financial specialty insurance group on

behalf of the right to your own coalition and a third witness would be mr. larsen executive director of state floodplain managers. fourth john rollins, president analytical company and the fifth witness is barry rutenberg second vice chairman of the national association of home builders and a final witness is mr. veissi from national association of realtors without objection your statement will be made parts of the record new-line now have a five minute summary of your testimony. we will start with mr. conrad. >> >> afternoon chairwoman waters and ranking member moore capito. my name is david conrad i

served as senior water resources specialist for the national wildlife federation the largest conservation organization. we greatly appreciate the subcommittee holding this hearing today and you're continuing interest of the reform and reauthorization of the nfip brett favre 12 underscore three major points from my written testimony first of the national flood insurance program is broke and essentially bank of for the data if 18 point* $7 billion to u.s. treasury many fundamental problems can be corrected the committee has the opportunity to pass meaningful reform to get the program on better fiscal footing and most importantly better provide protection for committees and the environment but unfortunately the discussion of the bill falls far short

of what is needed and may make things worse. second, these are not normal times. the nation's scientists tell us that climate change is already causing heavier rainfall changing patterns of snowfall will bring more severe hurricanes and increasing sea level all of which will increase funding risk and likely to exacerbate already increase flood damage and tomorrow is thursday it is important to recognize the nfip as currently functioning is leading to increasingly developments of damages to wildlife habitat coastlines and other resources. we need to fix these perverse incentives for more development and redevelopment and these environmentally sensitive high risk areas but unfortunately the committee is considering adding windstorm coverage to nfip and establishing a federal

backstop for state and natural catastrophes and in my view these are anti-environmental proposals to exacerbate the problems let me comment directly on the prairies act that we received. first, we support the five year phase out of the subsidies for two major class is a property's nonresidential and on primary residence. we also support increasing between 10 and 20% the amount that fema can raise premiums to improve nfip actuarial soundness. what we think needs to be fixed or expanded in the draft the bill should be amended to phase out subsidies for severe repetitive loss properties that have already cost the flood insurance program more

of a home and cumulative claims. we would strongly object to section six and 10 to do later waive requirements for mandatory purchase where residents remain vulnerable and inadequately protected from flooding. as we saw with hurricane katrina it was a dangerous mistake to assume no flood insurance is necessary because the core of engineers with the certified levy also nfip should be reauthorize for three years, not to five. director fugate has initiative a major to your effort to review the nfip with the intent to make comprehensive and legislative recommendations to guide the course of the future. the next reauthorization should dovetail closely with the efforts another overriding concern given the decision to limit authorization to the

reauthorization to insurance and finance we believe many of the most critical unnecessary reforms are not being made and the bill including the measures to better target assistance to low-income americans and approved building those and make hazard mitigation environmental protection the heart of the risk reduction strategy regarding a chartwell 64 we do not believe the federal government should get into the business of assuming liabilities and responsibilities for wind coverage. not only would such an expansion threaten the program long-term financial health, also fueled development and many more high risk environmentally sound areas. in conclusion once again the national wildlife federation greatly appreciates the opportunity to provide views many of those we have expressed a shared by a broad coalition working to

advance farsighted policy to better work with communities and we look for continued response too any questions the members may have. >> >> madame chairwoman ranking member capito i am the ceo of the insurance company and fidelity is right on flood insurance program largest provider flood insurance in the nation also the right around coalition made up of 85 private insurers who collectively administer 95% of the policy based they give for the opportunity to testify today and the right your own coalition and share our views on and legislation first and foremost, rely to voice support for the

legislation offered by representative waters may feel the bill provides much-needed stability for the betterment of the program i would like to direct response to the questions you propose for your request we share our view relative to nfip send any program they may need and all things considered it is functioning well despite reauthorization and expiration while there remains heavily in debt and has successfully retire 500 million in debt since katrina. not only that it has also shouldered the additional burden of hurricane hikes during the same time frame. the flood program greatly benefit from the application process the underwriting process would enable more agencies to understand the market flood insurance. purchasing a traditional

homeowner's policy to take five minutes to complete the transaction with the automated process one invests several hours in a flood policy. there needs to be a continued push for added rates and our goal should be a program that would be self-sufficient the program cannot survive if it comes in question each time nfip has to ask congress for more money. not in the bill was something i proposed is additional living expense coverage it will provide a viable coverage which will allow policyholders to get back on their feet much faster. it will provide the ability for the insured to keep lives on track as opposed to being thrown out on the street rate of decay we have this coverage and charged to the inappropriate premium to underwrite the coverage.

in what ways will launcher reauthorization bring stability to the housing market? when a buyer of property located with a special flood hazard areas that often derails the transaction reading to a cancellation of the purchase and in some circumstances it have been abandoned based on a well-founded fears to the ability too not secure flood insurance. the lack of immediate flood coverage has negative effect and a flood zone. u.s.-made to discuss short-term reauthorization have impacted our company and clients will endeavor to run operations as efficient as possible but the computer and mail and phone and systems both from customer-service standpoint and a computer system digging out of a backlog of lapses is difficult and we cannot provide the level of service to our customers for

which they are accustomed but with the recent lapse looking at 5% of annual policies immediately at upon reinstatement when they normally run a tour 10 hours could catch up window has double and triple which is costly and disruptive. we are always hopeful a per protection would be taken to avoid the laps to the general population of all involved of the flood program of current changes in procedures when we do fall into relapsed environment. the non quantifiable aspect is a loss of renewable policies. but also of the flood

insurance that are not mandatory part of a limit and are far less likely to renew if they feel the it is in jeopardy. to encourage bridges a patient the worst message we can convey is the continuation in question. you asked me to discuss what impact the modernization ever had. continued -- it is imperative to provide consumers with the most accurate information available. >> thing you very much. >> thank you madame chair. the association and members implement the national flood insurance program i represent their thoughts. nfip is no different than it has spent last 42 years essentially the same program

of 1968 it has been tweaked over time but we are essentially operating on the same model. this program tweaks the edges. where concern was significant reform of the program and pleased undertaking the effort to come back with the broad recommendations with which that needs to happen. significant changes to address is the inability to reduce flood losses despite the program going 42 years the flood control projects we have built or increasing flood damage significantly double the last decade. big ideas need to be thought about. is it time to turn the flood over to the private sector? is of no reason they can

cover that? there is more property at risk if that is the issue. probabilities have not changed significantly but consequences have changed dramatically with high-cost coastal areas all of those consequences are going up greatly and we cannot control that with the process. we see more intense thoughts people have said we had 3500 at year floods in the last 50 years we're seeing more intense rain falls that will increase our risk so significant changes are necessary. the issues we're dealing with the struggle of mapping and insurance mapping identifies the risk and re need to know that.

levees and not the issue reno all levies will fail over time at some point* that is every expert in the world saying that. insurance? it is the only security most people have for what they own typically the only thing they have and without insurance their left naked so delaying the map without insurance puts people into the situation where now there is no way to regain the lost they had or the options that are in the bill said those things seem to make more sense the policy fema has talked about and some of those options in the nation about 1% of the people are at risk for flooding 7% of the land area

and 1% of the people about half of those carry insurance and mr. fugate talked about trying to figure out how to run the actuarially sound program with their results a very few of those 11 million structures that are not required to have insurance is problematic so broadening that and spreading the risk is how you have to get the actuarial program. we would agree with the gao concern part of the issue is who benefits and to pay striking the balance for those that are at risk pay their appropriate share or is that paid by the rest of us? that is a challenge to face to try to reform this program i will respond other questions as to have them. thank you very much.

>> good afternoon mr. roman waters and ranking member capito prime actuary with qualifications in the actuarial society in word din florida property insurance the last 11 years served as chief actuary a private insurance companies as well as director of the state run wind pool testifying to lawmakers in florida and other states on the issue of government-backed property systems and published research papers on the subject after many years of observing public policy decision and their impact my message today is simply in designing rates for any property program ultimately supported by taxpayer capital great care should be taken a legislative definition and a practical definition conforms to the principles of the u.s. profession itself. reno insurance policy is a

promise to pay for a predefined type of loss in exchange for an up-front premium but by law of the contracts must be backed by capital sufficient to pay the claim even if they occur at the same time and it is and what excess of the premiums charged but the disaster is in frequent unpredictable and severe for these events the required capital can be catastrophic as well 20 times the annual loss for the job of back jury is to determine that premium but the job becomes more difficult on the losses are catastrophic and more difficult run the supporting capital is provided then another economic transaction through government support its data rate is reasonable and nondiscriminatory if it is the sound estimate of the expected value of all future costs associated with the individual risk transfer. each phrase has implications

for the different backed programs. not excessive and adequate and not the cemetery is the definition under rose state insurance laws so historically it is a sufficient condition where is hard to imagine a rate that would be actuarially sound but unlawful. the rates must reflect expected cost so it is not the most favorable or unfavorable outcome or whatever is convenient and has the weighted average. what that means is the scientific models are very useful since any snapshot may show disasters are not. they reflect all cost just not those we can easily quantified have to be on a cost basis rather than economic basis there real cost from the policy must be reflected and such rates to

reflect future cost rates may now be made to recoup past losses sell past data may now be predicted the past experience is not an account to lower future premiums and finally i shirley sound rates may include the risk of transfer they may include a provision for the cost of the capital required on demand to pay for catastrophic events. private insurance transfer rose three reinsurance arrangements and pay cost immediately government programs can borrow from future taxpayers to fund today's risk. the cost of capital may be arguably -- arguable but should now be zero. so the sound rate for a government program must be greater than the expected annual loss of the program plus provisions. failure to implement sound rates of the state and federal level has had unwelcome consequences has testified by many of my

colleagues at the table including over development of environmentally sensitive areas as low insurance rates subsidize future taxpayers to encourage consumers and developers to underestimate the risk and build in harm's way. expansion of the risk of the pool says they may retreat from the areas where they cannot compete and crowding out the capital that would be at risk in lieu of the taxpayer capital put at risk. as new debt must be incurred over the course of hearing you have heard with nfip by generations of taxpayers. walls a trance payers stage taxpayers to the high income of subset that choose to live in risky but picturesque areas they service the debt to the underfunded programs and despite the fact enabling legislation